Texas leads in 2014 debt sales

By Brian Chappatta, Bloomberg News

July 8, 2014Updated: July 8, 2014 8:21pm

Texas and its localities are taking on more debt this year than any other U.S. state, outpacing New York and California for the first time in at least a decade as a growing population pushes lawmakers to bond for projects.

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Municipalities in the state, home to seven of the 15 fastest-growing U.S. cities, issued about $19 billion of bonds in the first half of 2014, up 24 percent from the same period last year, according to data Bloomberg began compiling in 2003. Texas leaves it to localities and school districts to pay for new infrastructure.

Texas is one of 11 states where issuance is climbing, in contrast with a marketwide slowdown even as borrowing costs are close to generational lows.

“Historically, there is a more conservative approach to debt in Texas, but with the population increases going on, it's demanding that certain long-term projects be financed,” said John Bonnell, a fund manager who helps oversee $20 billion of munis at USAA Investment Management Co. “The state is very smart to borrow now when rates are low.”

Texas has the highest grades from the three biggest rating companies. Its fiscal health has left Texas localities in a position to tap borrowing at a cost close to the lowest since the 1960s.

California and its localities have issued $17.4 billion in debt this year, the second-highest but down from $27 billion in the same period of 2013. Texas never has toppled California's bond lead for a full year. In 2009, issuers in the Lone Star State borrowed $32 billion to the Golden State's $67.6 billion.

Moody's Investors Service last month raised California to Aa3, the fourth-highest grade — it had been cut to three steps above junk in 2009. Democratic Gov. Jerry Brown had cut new debt sales and taken the state from a $25 billion deficit to a record surplus.

Third is New York, where municipalities have sold $14.5 billion, or $886 million less than last year's pace. Moody's boosted New York in June to its second-highest rank, Aa1. The company cited Gov. Andrew Cuomo, a Democrat, winning his fourth-straight timely budget and slowing spending growth.

“Other areas have a more austere environment — there's still a hangover of that,” Bonnell said. Texas “is issuing a lot of debt, but you're not seeing a penalty on its borrowers.”

“Communities benefit from population and economic growth through increased sales and property taxes,” Nashed said in an email last month. “The responsibility for making local financial decisions rests squarely with local officials, as it well should because they are the ones best suited to determine the future of their communities.”